We used to have fun commenting about the bond market, including Treasuries, Mortgages, Municipals, and Corporates. But that was before the dark times. Before deleveraging.
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Tuesday, July 04, 2006

You are at a party. You are chatting with a friend, when your friend sees someone he knows arrive to the party. "Tom," he says, "Come over here I want to introduce you to someone." Your friend introduces you to Tom and you politely ask Tom what he does for a living. "I'm in investment management," he replies. Your friend suddenly gets serious and asks Tom, "Should I sell my Google shares or what?" You detect a hint of exasperation on Tom's face as he replies, "I have no idea. I am a bond trader. I will tell you that the 2-year is a great buy at 5.25%!"

Your reaction:

A) Your flight instinct kicks in at the dreaded possibility of a discussion on interest rates. You find the nearest window and jump out of it.B) You figure anyone in the investment business who doesn't know all about Google must be grossly incompetent. Disgusted by the poor company your friend keeps, you indignantly storm off to get a beer from the fridge.C) You think to yourself, "2-year what? Mortgage? CD? Savings Bond? Money Market Account?"D) You smile and say, "5.25%? My broker just sold me a Ford Motor Credit bond yielding 10%! And hey, its Ford. They aren't going anywhere."E) You quickly counter, "Are you kidding? The Fed is sounding more hawkish every day. They might get to 6% by year-end! It might be temporarily over sold, but I wouldn't touch the 2-year below 5.80%!"

If you answered A, B, or C and you are interested in investments, may I recommend every other investment-related blog in the western hemisphere because they all cater to those interested in the stock market. If you answered D, get off the internet and get a new broker. Like, now. If you answered E, welcome to Accrued Interest.

At Accrued Interest, we will discuss both what's going on in bonds on any particular day, as well as the longer-term issues facing the U.S. rates markets. As for my background, please check the profile page on the right. Suffice to say I am a buy-side trader, involved mostly in the cash investment grade market. At different times in my career, I've traded municipals, MBS, Governments, corporates, and to a lesser extent, CMBS and ABS.

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Accrued Interest

8 comments:

Ohh, shoot. I answered E. Although doesn't everybody know that the current Fed are IDIOTS? They'll overshoot for sure. Glenn Hubbard surely could be doing better. Witness him grousing about Bernanke here: http://www.youtube.com/watch?v=CHQ_4cZY2Xk

Well, that Ford Motor credit might have seemed like a bad idea during the summer, but I would imagine things firmed up after the latest sale they pulled off. Maybe not a lot but a little.

Personally, I think Barron's had an interesting call on GM bonds earlier this year. Wow! Disgusting, but it made a lot of sense. Considering the company's performance last year, there really wasn't any other place for their bonds or equities to go. And the GM, overall, looked like a safer credit than Ford back in the spring. I bet it probably still does.

Tom, where's the best place to find bond prices online? I'm sure you know this. :)

If you have access to Merrill Lynch's institutional website, they can give you the price of any bond that eligible for their indices. But that's probably not many of my readers.

Honestly, and this will surprise people who aren't in the bond market, I get corporate bond quotes manually typed up and e-mailed to me every day by various dealers. In most cases, if you see me write that MER 6.05% '16 are +83 offered, I'm quoting an e-mail from a dealer.

As to your comment about Ford and GM, the news was so overwhelmingly negative that there were really only two possibilities. Either they actually went bankrupt or the stocks and bonds soared. The latter is what happened.

I had been so negative on auto bonds for so long that I'm sure I was guilty of gloating when the downgrades started last year. So that might have tainted my thinking. Since I traffic in investment grade issues anyway, it has been academic for a while anyway.

Hi, didn't know where to post this. I've found your blog for the first time and have enjoyed reading through past posts. In the midst of all these voodoo TA types and classical economists, it's nice to get a different angle.

About Me

I oversee taxable bond trading for a small investment management firm. Opinions expressed on this website may not reflect the opinions of my employers. Strategies described here should not be taken as advice, and may not be the strategies being used for my clients. Take this website as the egotistical ramblings of a bond geek and nothing more. E-mail is accruedint *at* gmail.com or find on Facebook.